Saturday, January 14, 2006

Will Schering Plough Be Courted in 2006?

The pharmaceutical industry's been nuked, and Schering Plough (SGP) sure as hell didn't escape the wrath.

Once a $60 number, Schering saw its shares more than halved after its key allergy drug Claritin lost patent and the industry as a whole faced regulatory woes.

Plus, Schering's old management sucked.

Under the new stewardship of Fred Hassan, the drug company has been making a quiet but impressive turnaround.

When it comes to turnarounds, the balance sheet can count more than the income statement.

The whole pharmaceutical industry is under mass attack, but the companies themselves aren't weak financially.

Schering, for instance, has plenty of cash on its balance sheet --
so while the company is suffering from a temporary setback, we don't think its long-term outlook is that bleak.

Zetia, the cholesterol-control medicine that Schering-Plough developed in its joint venture with Merck (MRK), has been a spectacular success. The drug has a novel mechanism of action that inhibits the absorption of cholesterol in the digestive tract.

CEO Fred Hassan himself brings plenty to the table.

A seasoned veteran, Hassan previously played a key role in Sandoz Pharmaceuticals' sale to Novartis, as well as Pharmacia Upjohn's to Pfizer (PFE). Considering how many of Hassan's buddies/cronies are on the board of Schering (11 total directors, nine of which Hassan hand picked himself), we wouldn't be surprised if Hassan sold Schering inside the next 18 months.

Schering-Plough recently signed an agreement with research behemoth Bayer (BAY) to market Bayer's pharma product line in the US, as well as one with JNJ.

If only Schering (and every other 90's health care has been) would spend more on research and less on advertising, we'd be initiating coverage on SGP with a buy rather than a neutral rating.

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